The Silver Lining

Believe it or not, there is a silver lining to the ongoing market
carnage: The expected returns for long-term investors who invest
new cash today are continuing to improve and are now considerably
better than average.

The S&P 500 is now about 10%-20% below fair value (according
to most of the estimates we trust), and this suggests that total
returns over the next decade will be higher than 10% per
year.

Importantly, this does NOT mean the market won't drop
precipitously from here. It might. Long-term valuation analysis
are irrelevant to near-term forecasting, and as we and others
have frequently noted, after bubbles of this magnitude, stocks
often overshoot by 50% or more.

Below are Jeremy Grantham's expected 7-year return estimates for
various asset classes as of October 31. Most major stock indices
are down more than 10% since then, so the current expected
returns are even higher.